Scribd
Upload
8 views

Elements of Decision Problems

The document outlines the fundamental elements of decision analysis, including values and objectives, decisions to make, uncertain events, and consequences. It emphasizes the importance of aligning actions with goals and understanding the decision context, as well as the challenges of making decisions under uncertainty. Additionally, it discusses the significance of planning horizons and the need to evaluate trade-offs among various objectives.

Uploaded by

Nicholas Amanya
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
8 views

Elements of Decision Problems

The document outlines the fundamental elements of decision analysis, including values and objectives, decisions to make, uncertain events, and consequences. It emphasizes the importance of aligning actions with goals and understanding the decision context, as well as the challenges of making decisions under uncertainty. Additionally, it discusses the significance of planning horizons and the need to evaluate trade-offs among various objectives.

Uploaded by

Nicholas Amanya
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 18

Probability and Decision Analysis

Introduction to Decision Analysis

Elements of Decision Problems


Overview

Understand the basic characteristics of and how to identify the four decision
elements:

1. Values and objectives (and decision context)

2. Decisions to make

3. Uncertain events

4. Consequences

2
Value and Objectives

• It is critical to align actions with goals.

Ø Values – things that matter to us

Ø Objectives – what we specifically want to achieve

Ø Values and objectives overlap and together make up the decision context.

• Most people do not make the effort or take the time to define values and
objectives explicitly, systematically and consciously.

3
Value and Objectives – Discussion Example

• As a new graduate, you will have to choose from among a number of job
opportunities. Your values are the things you care about in choosing the job.

• Typical values of graduates include compensation, prestige, healthy workplace


environment, housing, and cost-of-living concerns, along with time off to spend
with family and friends and social concerns.

• As you can imagine, you want to know which values are important to you and
how they rank with each other.

4
Value and Objectives - Money

• Money is a special and unique type of value because it is usually tied in with
achieving your other objectives.

Ø This is called a proxy objective.

Ø For example, if you value travelling, you will need money.

• Pricing out: By placing a monetary value on your different objectives, you can
compare them and decide about trade-offs more easily.

5
Value and Objectives - Money

• Advantages to using money as an objective:


Ø Universally understood
Ø Measurable
Ø Simplifies trade-offs because it allows different objectives to be put on the
same scale via pricing out
• Disadvantages:
Ø Monetary values cannot be assigned to all values and objectives.
Ø Safety, family, lives, environment, …

6
Decision Context

• Decision context: the setting or circumstances in which the decision occurs

– Usual has some unique features that it different from other contexts

• Spend time making sure that the objectives are appropriate to the specific
context.

• Every decision situation involves a specific context, and that context determines
which objectives need to be considered.

7
Example – Boeing Picks a Computer

“As a large-scale manufacturer of sophisticated aircraft, Boeing needs computing


power for tasks ranging from accounting and word processing to computer-aided
design, inventory control and tracking, and manufacturing support. When the
company’s engineering department needed to expand its high-power computing
capacity by purchasing a supercomputer, the managers faced a huge task of
assembling and evaluating massive amounts of information. There were systems
requirements and legal issues to consider, as well as price and a variety of
management issues.”

8
Boeing’s Objectives

9
Central Decision

Central decisions: Many situations have decisions that need to be made right away.

– Identify these decisions immediately

• Some decisions are not urgent. These can wait.

– Timing – When does the decision have to be made?

– Information – You may have to make the decision with less information than
you would like to have.

• Often a trade-off between timeliness and information

10
Sequential Decisions

• Sequential Decisions: Problems often involve multiple decisions to be made over


time, not all at once.

– Identify in what order they need to be made

• Which ones need to be made immediately?

– One decision may trigger another

– A decision may depend on what happened due to a prior decisions

• Called dynamic decision situations

11
Sequential Decision Making

12
Uncertain Events

• Uncertainty: decisions may have to be made without knowing exactly what will
happen in the future or exactly what the ultimate outcome will be

• Not all future events are relevant. Determine which ones are; ignore the rest.

Ø Relevant future events are those that will impact one or more of your
objectives.

Ø Information availability should not determine which future decisions you


focus on.

13
Dovetailing Uncertain Events and Sequential Decisions

14
Consequences

• Each objective in the decision context will have a final consequence.

– Multiple objectives mean multiple consequences.

• Determine measures for each consequence so you can determine the extent to
which each objective was met.

– Monetary or non-monetary consequences?

• Can you price out any of the non-monetary consequences?

– What are the trade-offs between various objectives?

15
Dovetailing Uncertain Events and Sequential Decisions…Plus Consequences

16
Planning Horizon

• Planning horizon: The end of the time line during which you make your decisions
until the final consequences occur.

• An important issue: How far into the future should you look? It is easy to keep
pushing the planning horizon forward.

Ø Choose a planning horizon:

1. Such that the events and decisions that would follow after are not essential
parts of the immediate decision problem

2. And that is consistent with your decision context and the relevant objectives.

17
Thank you

You might also like